Sponsors ask this two ways. Can I put a HUD loan on a ground-leased site? And why will some ground lessors not do HUD at all? The answers fit together. HUD permits it. It requires the landowner to sign HUD’s terms. Some landowners choose not to.
The addendum is a standard HUD document. It is not marked up deal by deal the way a lender’s estoppel might be. Where it conflicts with the ground lease, the addendum controls, and it stays in force as long as HUD insures the loan. Insured loans run for decades.
In our reading it gives HUD rights over the lease, including over changes to it, that the landowner cannot alter while the loan is insured. We are not going to summarize it clause by clause here. HUD revises its forms, and the version in force on your closing date is the one that binds. Read the current addendum with HUD counsel before you assume anything about it, in either direction.
HUD also has its own requirements for how much lease term must remain, and they differ by program. Confirm them for your program with HUD counsel and your lender.
A housing authority, a city, a church or a land trust leasing at nominal rent is not running a land investment. Its goal is the housing. Giving HUD override rights for the life of the loan costs it little, and HUD financing may be the best execution for the building. Those leases go HUD all the time. Our affordable housing ground lease overview covers that structure.
What we own is simple: land under a 99-year lease with a fixed, non-amortizing rent schedule set at signing. Our own investors and any lender on our fee underwrite exactly that. They underwrite it because nobody can change it.
An addendum that gives a third party rights over the lease for decades changes what we own, for most of the life of the asset. That is fine for a mission lessor. It does not fit a land investor whose whole value is that the paper does not move.
This is not a criticism of HUD. HUD is protecting a federal insurance fund and its terms make sense for that job. It is just a different job from ours. So we say it plainly and early: if HUD is your permanent execution, our ground lease is the wrong tool for that deal.
HUD’s appeal is long, fully amortizing, fixed-rate, non-recourse debt. A long amortization means a low loan constant. A ground lease adds proceeds only when the ground-lease rate is below your DSCR times the perm constant. The lower the constant, the lower that bar.
So on some deals HUD on fee simple simply produces more proceeds than a ground lease plus conventional leasehold debt. On others, timeline, processing or program requirements make HUD the slower or harder path, and the ground lease wins on certainty. Run both on the same NOI before you choose. The accretion test is on our LIHTC ground lease page.
The expensive mistake is signing a ground lease and planning a HUD takeout later. If the landowner will not sign the addendum, that takeout is closed, and you find out at the worst time.
If you already hold a HUD quote, send it with the land basis. We run both cases on the same NOI. If HUD on fee simple wins, keep the fee, and we tell you so.
If you want a HUD refinance later, under 223(f) or anything else, the landowner’s signature is needed then, not just now. With us, that refinance path is closed for the life of the lease. Plan the long-term debt as agency, bank or bond.
If the ground lease wins, line up a leasehold lender that already works behind unsubordinated leases. We can introduce them.
| Execution | Behind our ground lease | What to know |
|---|---|---|
| Agency permanent (Freddie Mac, Fannie Mae) | Yes. Both publish ground lease standards, including a section written for unsubordinated leases. | The lease needs a long tail past maturity and fixed rent steps. We draft to the published standards. |
| Bank construction loan | Yes. The common path on new construction, followed by an agency or bank perm. | Banks underwrite the leasehold mortgagee protections closely. Expect estoppel and lender consent work. |
| Debt fund or bridge | Yes. Fast and flexible. | Higher cost, shorter term. Plan the takeout on day one. |
| Tax-exempt bonds (affordable) | Yes, privately placed or credit-enhanced. | Bond counsel confirms the structure. On 4% deals the leased land also helps the bond test. |
| HUD-insured | Not with us. We do not sign HUD-92070M. | Possible with a lessor who will sign it. |
More on the leasehold side is on what leasehold lenders require and leasehold mortgage financing. We never lend on the leasehold ourselves. If you want help, we introduce leasehold lenders and arrange the debt. The fee for that is 1% of a loan we introduce, earned only when that loan closes.
The land, on a 99-year lease: nothing to manage, senior to the building’s lender, low yield because the buyer is buying the right to not pay the tax. The building above it: higher yield, paid monthly, depreciable. Both are replacement property. Both close on a date we control, which is the part that matters on day 140.
1031 SolutionsWorking with an intermediary? The standby sheet for line 3 of the identification form.
Yes. HUD permits leasehold financing, but the landowner must sign HUD's lease addendum, form HUD-92070M, which overrides parts of the ground lease for the life of the insured loan. Confirm the current form and requirements with HUD counsel.
Because the addendum gives HUD rights over the rent, lease changes and the fee for decades. For an institutional land investor whose value is a fixed lease nobody can change, that is a different asset. It is an election, not a legal bar.
No. If HUD is the permanent execution, our ground lease is the wrong tool for that deal, and we say so early.
Agency permanent loans from Freddie Mac and Fannie Mae, bank construction loans, debt funds and bridge lenders, and tax-exempt bond executions on affordable deals.
No. HUD's low constant raises the bar a ground lease has to clear, so on some deals HUD on fee simple wins on proceeds. On others, timeline and certainty favor the ground lease. Run both on the same NOI.
Send the NOI, the HUD quote and the land basis. We will tell you whether a ground lease with conventional leasehold debt beats it, and say so plainly if it does not.